Acuity Knowledge Partners Survey Predicts Improvement in Dealmaking Opportunities in 2023, Fueled by TMT and Growth Sectors

Acuity Knowledge Partners (Acuity), a leading provider of bespoke research, analytics, staffing and technology solutions to the financial services sector, today released findings from its inaugural Investment Banking and Advisory Survey. The results show that investment banks and advisory firms are cautiously optimistic that markets will modestly revive through the second half of 2023, despite the current economic uncertainty. High inflation, tightening of fiscal and monetary policy and energy supply disruptions due to the war in Ukraine are the key factors hindering a fast economic recovery. However, 58% of the senior executives of leading investment banks and advisory firms surveyed expect only a mild dip in business opportunities.

Around 71% of the respondents expect private equity firms and their large reserves of unallocated dry powder will drive deal activity throughout the remainder of 2023. Reasonable valuations and an increase in market consolidation are likely to generate additional deal volumes. Digital transformations, corporate restructuring, increased cross-border activity and ESG considerations are also key factors expected to keep dealmaking buoyant this year. “The past few quarters have posed challenges for dealmakers worldwide, with tighter monetary policy, persistent inflation and geopolitical tensions weighing on dealmaking activity. The M&A market is heavily influenced by credit trends, and the current tightened credit conditions have made debt scarce and more expensive, impacting both valuations and activity levels,” said Anish Ailawadi, Managing Director and Head of Investment Banking at Acuity. “Although the multiples for strategic M&A dipped across sectors in 2022, firms are optimistic that the technology, media and telecom (TMT) sector will generate higher deal volumes this year, given the evolving artificial intelligence (AI) and big data technology landscape.”

While geopolitical tensions and economic uncertainty have created headwinds, they have also generated ample dealmaking opportunities. With record levels of private equity dry powder, lower valuations, less competition for deals and new assets coming to market, 77% of the respondents expect M&A to drive revenue for investment banking firms, followed by restructuring and debt advisory. The TMT, healthcare and pharma sectors are expected to generate the most opportunities for investment banks and advisory firms, with particularly elevated interest in AI and machine learning, virtualisation and cleantech deals. Around 55% of the firms surveyed expect increased cost pressure this year, compared to 2022. To mitigate costs, improve the customer experience and boost the deal pipeline, firms are deploying productivity-enhancement and automation tools, leveraging AI, employing offshoring services across the deal lifecycle and conducting strategic portfolio reviews.

Firms are placing increased importance on operational efficiency and cost optimisation to achieve long-term business success. More than 40% cited that strategic initiatives such as process re-engineering and workforce strategies are among the top three activities that their firms are currently spending time on. Pankaj Bukalsaria, Director, Investment Banking at Acuity, added, “There are many voices in the market trying to predict the future. While there’s a lot of speculation about soft landings or recessions, what bankers are telling us is that there’s still value in growth companies. Some of the changing economic conditions are prompting a renewed focus on innovation within investment banks but overall the broad macro picture is less bleak than some headlines might suggest.”